Pound Exchange Rate Outlook Depends on UK CPI

Sterling steadied against the Euro on Friday, with the GBP/EUR exchange rate trending in the region of 1.2789 following the publication of the UK’s Construction Output report and BoE 12-month inflation projection.

Construction output increased by more than expected on the month and declined by less-than-forecast on the year. The BoE’s 12-month inflation projection was revised from 1.8% to 2.0%.

Over in the Eurozone, final German inflation data remained at previous estimates.

While EU referendum news is likely to remain one of the most significant causes of GBP/EUR exchange rate volatility, next week’s UK inflation report could also be a catalyst for considerable movement.

As it stands, economists are anticipating an increase in consumer price pressures. If that proves to be the case the Pound could rally against its most traded peers. Conversely, a dip in inflation could drive GBP lower across the board.

(Previously updated 08:30 10/06/2016)

GBP/EUR Performance Mixed Before Construction Output Report

Despite solid German trade data released on Thursday, the Pound to Euro exchange rate was trading around 0.4% up as Thursday’s session drew to an end.

The Euro weakened and allowed Sterling to advance towards the end of the day due to news that German bond yields were falling towards record lows. Some believe the bond yields could head into negative territory, with ‘Brexit’ uncertainty potentially triggering the drop.

Ahead of the release of the UK’s construction output report on Friday the Pound to Euro (GBP/EUR) exchange rate was trending in the region of 1.2762, having fallen from a previous high of 1.2805.

(Previously updated 15:40 9/06/16)

Pound to Euro Exchange Rate Fluctuating after UK Trade Data

The UK’s trade deficit was shown to have narrowed by more-than-forecast on Thursday, helping the Pound (GBP) trim earlier losses against the Euro (EUR) and return to trending in the region of 1.27.

Economist Howard Archer said of the trade data: ‘Along with the jump in industrial production in April and decent retail sales growth, the trade data suggest that UK GDP growth could be holding up better in the second quarter than has been thought, despite the heightened uncertainty.’

The only other UK report to be aware of this week is the nation’s construction output figures for April and the Bank of England’s 12 month inflation forecast.

The BoE’s previous 12 month inflation forecast came in at 1.8%. While a figure closer to the target rate of 2% may lend the Pound support, signs that the central bank believes that inflation will take longer to return to that level could put Sterling under pressure.

The GBP/EUR exchange rate is currently trending in the region of 1.2788

(Previously updated 17:30 08/06/2016)

GBP/EUR Sinks on Wednesday

The Pound to Euro exchange rate largely fluctuated throughout Wednesday’s session, before slipping around -0.4% as the day drew to a close.

Despite positive UK data throughout the day, including good production results and an optimistic growth forecast from NIESR, the Pound slipped as ‘Brexit’ jitters allowed the Euro to advance.

The Euro remained sturdy throughout the day on the back of Tuesday’s positive growth data, as well as a weak US Dollar.

The Pound may be able to stage a recovery on Wednesday if the UK’s latest trade figures show the reduction in the deficit forecast by economists.

However, any EU referendum news is likely to have more of an impact on GBP demand.

(Previously updated 16:16 8/06/16)

UK GDP Estimated at 0.5% – GBP/EUR Fails to Benefit

As the European session progressed the Pound Sterling to Euro (GBP/EUR) exchange rate trimmed earlier gains despite the UK’s GDP estimate for May coming in above forecast levels.

The estimate, released by the National Institute of Economic and Social Research, came in at 0.5% in the three months to May, up from a revised 0.4% in April.

While the report was positive, the GBP/EUR currency pair was still left trending in the region of 1.2777

(Previously updated 13:30 08/06/2016)

The Pound Sterling to Euro (GBP/EUR) exchange rate soared on Tuesday as investors rode the waves of a mistaken ‘fat finger trade’ during the Asian session. Positive UK data meant the Pound saw little resistance to its rally.

GBP/EUR was up around 1.0% during Tuesday’s session and trended in the region of 1.2850. The pair had seemingly recovered from a three-week-low of 1.2659 and sailed past the week’s opening levels of 1.2770.

While the Pound trimmed some of these gains on Wednesday ahead of the release of UK industrial/manufacturing production and GDP data, GBP/EUR firmed again as the production reports smashed forecasts.

Industrial Production surged by 2.0% month-on-month, taking the annual figure to 1.6%. Readings of 0.1% and -0.3% had been expected.

Similarly, Manufacturing Production jumped by 2.3% on the month and printed at 0.8% on the year – smashing respective forecasts of 0.0% and -1.3%.

After the data was published GBP/EUR was trending in the region of 1.2808.

The Pound was also able to gain on the US Dollar as the latest developments in the US Presidential campaign pushed investors away from the ‘Greenback’.

Gains were limited as the Euro derived support from the news that the World Bank had cut its growth forecasts for the global and US economies. The decision was seen to weigh on US interest rate hike expectations.

(Previously updated 08:30 08/07/2016)

Pound (GBP) Experiences Surprising Recovery after ‘Fat Finger Trade’

The Pound soared across the board on Tuesday, gaining against most major rivals due to what has essentially been described by analysts as a mistake.

Sterling previously suffered yet another slump in sentiment on the back of the latest EU Referendum polls, which revealed that an increasing amount of those asked supported the idea of a ‘Brexit’.

With this shift reflected in polls released by The Guardian, ICM and YouGov, Pound investors sold the Pound as they feared the currency’s future in the global market was becoming increasingly uncertain.

However, a ‘fat finger trade’ in Tuesday’s Asian session (a mistaken trade) kickstarted a Pound rally that lasted throughout much of Tuesday’s European session. Business Insider UK reports;

‘Market consensus seems to be that the move was caused by a fat finger trade, whereby a trader punches in a transaction incorrectly which can in turn trigger automatic orders, known as stops, to sell or buy currencies. A trader from one City of London trading firm confirmed to Business Insider that they believe the trade was a ‘fat finger’ mistake. It is currently unclear by whom the error was made.

In normal trading hours, given how liquid the GBP market is, it is unlikely that a single mistake would move the market so massively, but in Asian trade, liquidity is substantially lower, which makes triggering a stop far easier.’

Light, but optimistic UK data meant the Pound saw little resistance to its gains. Halifax’s latest house price report indicated that figures were higher-than-expected in all prints. A poll quietly released by YouGov on Monday also indicated that the ‘Remain’ camp led against the ‘Leave’ camp by one point.

Euro (EUR) Boosted Slightly by Eurozone Growth News

The Euro dropped on Tuesday despite largely positive Eurozone news. It had previously strengthened during Friday and Monday’s trade sessions as investors reacted to underwhelming US data.

A shockingly poor Non-Farm Payroll report led to Federal Reserve rate hike bets dropping as appeal for the US Dollar’s biggest rival, the Euro, increased.

The Euro continued to strengthen on Monday as appeal for other major world currencies took a hit. As a result, the relatively ‘safe’ Euro was bought by US Dollar and Japanese Yen traders.

However, the Euro dropped from its highs on Tuesday as the Pound’s sudden accidental strength pushed it down and investors indulged in profit-taking from the Euro’s Monday highs.

This was despite the latest growth reports from the Eurozone indicating that Q1 Gross Domestic Product (GDP) had scored above all preliminary figures.

Will Sterling maintain the levels it gained on Tuesday? While the Pound sailed higher amid little resistance due to positive light data, it’s still possible that the increasingly volatile currency will plummet from its highs on profit-taking or corrective trading.

The first relatively influential UK data of the week is due on Wednesday morning. British industrial production and manufacturing production reports are due, followed by a May Gross Domestic Product (GDP) estimate from NIESR in the afternoon.

UK production is currently forecast to worsen in all major prints, with contractions worsening year-on-year. Sterling could extend its rally if these scores print above expectations, but a slight improvement from very poor scores may do little to boost investor confidence.

With Eurozone data set to be quiet until the release of German trade data on Thursday, GBP/EUR is likely to be driven by Pound movement throughout Wednesday.

As always, a perceived shift in ‘Brexit’ sentiment is highly likely to inspire Sterling movement regardless of the day’s UK data.

If more polls indicating a strengthening ‘Remain’ camp are released, the Pound could recover further. However, more polls showing an increase in ‘Leave’ favour could see the Pound quickly plummet back to its weekly lows.